UAE: How new law protects employees’ gratuity, end-of-service benefits

Here is a complete guide to the resolution

Waheed Abbas

Published: Thu 11 Aug 2022, 2:12 PM

The UAE has announced a new resolution regarding bank guarantees from employers and employees’ protection insurance scheme for the companies operating in the private sector.

The new law protects employees in the event of an employer becomes insolvent and fails to pay end-of-service commitments to the employee.

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Libbie Burtinshaw, operations manager at company service provider PRO Partner Group, shares the details of the new resolution and its impact on employees and employers.

Below is a complete guide to the new law.

What is the new resolution all about?

Dr Abdulrahman Al Awar, Minister of Human Resources and Emiratisation, has issued the Ministerial Resolution No. 318 of 2022 regarding bank guarantees and employees' protection insurance scheme in the private sector.

What has changed in the new law?

Under the previous law, the company was required to put down a deposit of Dh3,000 per employee to ensure that the employer made provision for the end-of-service benefit for each employee. This new ministerial resolution further clarifies this option to ensure that the rights and benefits of employees are protected. Private companies can now pay a yearly sum directly to the local bank for each employee or pay monthly instalments under an individual insurance policy per employee.

Are there multiple options for employers?

Employers have two options. Under the first option, an employer can provide a bank guarantee of Dh3,000 for each employee, valid for one year. The bank guarantee is the written commitment from the bank to support the obligation from the employer to the employee. The guarantee is automatically renewed for each year of service. Under the second option, the employer sets a 30-month insurance policy for each employee. The insurance policy is paid monthly at a value of Dh137.50 for each skilled worker, Dh180 for each unskilled worker, and Dh250 for each worker paid by higher-risk establishments that are not registered with the Wages Protection System (WPS). The insurance coverage amounts up to Dh20,000 per worker and will protect them if their employer fails to fulfil their end-of-service commitments. In case of a claim, the proceeds may be used to cover unpaid wages in the previous 12 months, end-of-service gratuity costs or repatriation costs of the worker.

Does the new resolution protect workers?

Yes. Both options protect workers in the event of an employer being unable to pay end-of-service commitments to the employee.

How does the new law help employers?

The second option under the insurance policy category allows companies to spread the cost of employee benefits. This means they do not have to commit a large upfront deposit for each employee. This improves companies’ cash flow as they do not have large bank guarantees on their balance sheet – which can be significant for companies with large numbers of employees.